Italy’s Central Bank Chief Stays Put Despite Crisis

The head of Italy’s central bank had flown all the way to Washington for World Bank and other meetings when he learned that his government had stripped him of the authority to represent it. He had to cut his trip short and fly home.

Even that indignity was not enough to force Antonio Fazio to quit.

At the center of a banking scandal that has greatly embarrassed Italy and hurt Prime Minister Silvio Berlusconi politically, Fazio showed no signs Monday of stepping down.

The position of central bank governor is for life, a provision that is intended to shield the appointee from political pressure. As a consequence, the government cannot fire Fazio, even as questions mount over his handling of a multibillion-dollar bank takeover bid this summer.

Italy’s highly regarded finance minister, Domenico Siniscalco, resigned last week in protest over Fazio’s continuation in office, complaining that the scandal had paralyzed government efforts to salvage a moribund economy. He is the second finance minister in just over a year to quit after tangling with Fazio.

Berlusconi, who defended the beleaguered bank governor for months against a chorus of critics, finally made a direct plea to Fazio that he consider leaving his job. His continuance, Berlusconi said late last week, was “incompatible with the country’s credibility.” To no avail.

“This is causing enduring and deep damage to Italy’s reputation, not just among other countries but especially in the financial markets” on which Italy depends, said Federico Rampini, a commentator who specializes in economic issues. “I can think of no precedent, in any industrialized country, for such an open conflict between a government and its central bank.... It is Pirandello’s theater of the absurd.”

Fazio has denied wrongdoing. The devoutly religious governor has the support of a small but influential right-wing party in the ruling coalition and conservative elements of the Roman Catholic Church. That had made Berlusconi particularly reluctant to press for Fazio’s resignation, especially with difficult elections on the horizon.

Fazio’s troubles grew over the summer, after prosecutors opened an investigation into alleged irregularities in the takeover of Banca Antonveneta by another Italian concern, Banca Popolare Italiana and a group of Italian investors.

Fazio was not a target of the investigation, but officials from the other bank were. Police wiretaps recorded Fazio speaking to some of those bankers, and in the conversations he appeared to reveal that he had taken steps favoring the Italian investors over a major Dutch bank, ABN Amro, also attempting to take over Banca Antonveneta. The acquisition battle ended Monday, with ABN Amro announcing that it had reached a deal to buy Banca Popolare Italiana’s shares in Antonveneta.

As governor of the central bank, Fazio is supposed to be a neutral arbitrator.

The wiretaps also captured Fazio’s wife, Cristina Rosati, who holds no official position, offering advice and assurances to one of the targeted bank officers, Gianpiero Fiorani, chief executive of Popolare Italiana. Transcripts of the conversations were published in the Italian press and also obtained by The Times.

The scandal, which had been confined largely to Italian and European financial circles, spilled over the Atlantic Ocean this weekend when Fazio found himself abruptly barred from representing Italy at a World Bank committee meeting in Washington. New Italian Finance Minister Giulio Tremonti, another fierce critic of Fazio, replaced the central bank leader with a junior official at the last minute.

In Washington before the World Bank meeting, Fazio attended a session of the Group of 8 industrial nations, alongside Tremonti. Aides to Tremonti were quoted in Monday’s La Repubblica newspaper saying that the Finance Ministry would continue to employ this tactic of steadily undermining Fazio, presumably until he quits.

Short of that, there is no telling how the government can sack Fazio. One possibility is to resort to a Superior Council that oversees the Bank of Italy, as the central bank is known, but it has not been tried before.

“There is no way out of this without creating further damage,” Rampini, the commentator, said. “Fazio’s been a terrible central banker, but now anything the government does is also a danger to the independence of the central bank. He should have resigned a long, long time ago.”

The bickering comes at a time when Italy’s economy is staggering under the weight of an unwieldy public sector, an enormous debt, sluggish growth and high unemployment. It is also a crucial time if Italy aspires to medium-term recovery; financial analysts say the nation needs to restore confidence among domestic and foreign investors and business communities.

Financial rating agencies are eyeing the situation nervously, especially with Italy’s 2006 budget in need of approval this week and Britain’s influential Financial Times talking of Italy’s “bank farce” in a front-page headline. Until now, the central bank had been one of the most respected, stable institutions in a country with few of them.